Insurers put pressure on drugs firms

DRUGS companies can expect rises of up to 800% in the cost of insurance after high-profile lawsuits and the tougher line being taken by underwriters in the aftermath of 11 September.

This follows Financial Mail's report last week that train operators face a crisis because insurers have stopped them claiming for lost revenue after a crash.

The dramatic increase in drug company premiums affects policies that pay out to patients if new treatments turn out to be harmful.

Insurers say this should not mean that life-savings drugs are withheld from the public. But they admit privately that some marginal treatments might not go into production.

Guy Bessis, managing director of global property and casualty risks for insurance broker Willis, told Financial Mail: 'Some insurers believe the depth of clinical trials is not what it used to be. The Federal Drug Administration in America is giving fasttrack approvals in situations where it would not have done so 20 years ago.

'That, coupled with the pressure-from the public to introduce drugs such as Aids treatments, means companies can no longer carry out the extended trials they would have done in the past.'

After well-publicised problems, such as those involving breast implants and the recent withdrawal of cholesterol drugs linked with a number of deaths, the insurance industry is trying to pull back from what it regards as one of its riskiest sectors.

Late last week the world's biggest re-insurance group, Munich Re, said that its record third-quarter loss of £700 million was largely driven by claims following the attacks on the World Trade Centre.

But the group had also been hit by the costs of Bayer's recall of Baycol/Lipobay, its cholesterol treatment.

'After September 11 and with the insurance market hardening sharply, underwriters are becoming more risk averse,' said Bessis, whose company acts for some of the major drugs groups.

'Many companies are accustomed to being able to buy insurance-to cover them for more than $500 million of liability claims, but that ceiling has been lowered by a quarter.

'And for that level of reduced cover they are having to pay probably 400% more. Some insurers say the pharmaceuticals sector is under-rated by up to eight times - and they are now trying to do something about it.'

That means insurers think pharmaceuticals companies are paying premiums at a rate eight times lower than they should be.

Bessis says there is a chance that some sections of the pharmaceutical industry may no longer be able to buy insurance cover in the commercial market.

He believes that this will force them to set up their own arrangements and turn to ' selfinsurance'.

Bessis added: 'Clearly liability cover is an essential safety net for the drugs companies but at the same time insurers' perception is that those risks are much greater.

'It's a massive wake-up call to them. I don't think it will mean life-saving treatments are withheld, but it will mean a lot more pressure for some companies.'